Bank of America (BofA) has presented a cautious yet hopeful outlook for India in its “Year Ahead 2025” strategy, setting a target of 26,500 for the Nifty, representing a sub-9% return for the calendar year. The report suggests that Indian markets may underperform US equities in dollar terms due to weak earnings growth, high valuations, and sluggish domestic capex activity. While the broader Indian market remains rich in valuation, slower reform momentum and welfare-heavy policies could challenge its premium status.
BofA highlights several risks, including India’s reliance on fiscal and monetary stimulus, geopolitical policies, and the trade environment, which could inject volatility into the markets. However, potential tailwinds include commodity prices, credit growth, and opportunities arising from policy reform calendars. Foreign institutional inflows are expected to remain weak, while domestic institutional inflows may moderate in 2025 amid rising concerns over stretched valuations. The bank maintains that further valuation expansion appears unlikely given the current macroeconomic setup.
